With your permission, a Cheann Comhairle, I propose to make a statement.
The meeting of the European Council of Heads of Government, accompanied by Ministers for Foreign Affairs, held in Rome on Friday and Saturday of last week, was notable in that it coincided with the anniversary of the signing of the Rome Treaties 20 years ago. Though we have in this country reason to be dissatisfied with the operation of Community policies in some respects, we have also reason to appreciate the ways in which membership has helped us. I do not think, however, that this is the occasion to review the benefits and costs. It is sufficient to note the economic and social development of the past 20 years in Europe and nationally, and to bear in mind that the membership of the Community has for us and the other countries much more than a material significance.
The discussions at the Council in Rome were concerned with the world economic and monetary situation, with the external relations of the Community and with internal Community affairs.
On the world economic situation, ways of ensuring an acceleration, or at least a continuance, of recovery from recession were discussed. This country has more than a usual interest in world trade. Our imports are equivalent in value to about half of all we produce or earn. This means that the prices we pay for a large proportion of the goods we use are largely determined abroad.
Similarly, our merchandise exports are equivalent to something over 40 per cent of gross national product, with invisible exports like tourism, dividends from abroad, emigrants remittances and so forth helping us to pay our way by making up the balance between total imports and total exports. The price which exports fetch on world markets also helps to determine prices in this counry, which, for the purpose, is part of a single market. A producer does not mind whether he sells abroad or at home so long as he gets his price.
Both import and export prices have up to recently been rising more rapidly than consumer prices here. Between 1972 and 1973 import prices went up by 13 per cent and export prices by 22 per cent but the consumer price index went up by only 11 per cent. Between 1973 and 1974 import prices rose by between 45 per cent and 50 per cent. In contrast the consumer price index rose by 17 per cent. Between 1974 and 1975 the difference was less marked, with many domestic influences like the level of pay settlements starting to become more significant. Import and export prices rose by about 20 per cent but the consumer price index went up by 21 per cent. Between 1975 and 1976 the same influences were evident. Consumer prices rose by 18 per cent, import prices by about the same percentage and export prices by an estimated 22 per cent.
The rise in the price of commodities caused by sterling devaluation may still be playing a significant part in our inflation. Import and export prices do not feed immediately into domestic prices. There are leads and lags which differ according to season and product. The general picture is that we have been both importing and manufacturing price rises. The remedy, if we wish to attain stability, lies both in what we can do in this country and in what happens abroad. Of late, in fact, the emphasis must be much more on the degree of restraint we can exercise at home.
In Rome we were concerned with the international aspects. Trade, inflation and unemployment were among the most important concerns of the meeting. If international trade does not develop then no economy can expand for long and employment and growth must suffer. For many countries, including ours, the development of trade is dependent on a reduction in inflation. Trade, growth, inflation and unemployment are all inextricably linked.
Deputies will be aware that the last OECD Economic Outlook forecast for member countries—
(1) an increase of GNP of 3¾ per cent in 1977 compared with an estimated 5 per cent in 1976;
(2) a growth of trade of about 6 per cent or about half the percentage growth of 1976;
(3) unemployment of 5¼ per cent as against 5 per cent in 1976.
European Commission forecasts for the countries of the Community are similarly disturbing. They say that growth may well be slower in 1977 than in 1976 and unemployment higher. In fact, in their view, Ireland, the Netherlands and Germany are the only countries in the Community where unemployment is not likely to get worse this year.
At the Rome meeting I said that our first priority must be to maintain our democratic institutions which are obviously threatened by a continuation of unemployment on the present scale. In the past it was a question of whether unemployment or inflation imposed the greater threat. Now both must be tackled if economic freedom is not to be put in serious jeopardy.
The number of young people potentially seeking employment in the entire Community, particularly in Germany, Italy, the United Kingdom and Ireland, is the greatest single employment problem facing us today and is the one which is fraught with the greatest political and social danger. I drew particular attention to the fact that these new entrants to the Community's labour force are more highly educated than those in the older age groups and have higher income and job expectations. It will not be possible to alleviate this problem unless we are prepared to take special measures at Community level, specifically aimed at increasing employment. I indicated particular interest in the suggestion by the President of the Commission for a new type of Community investment more or less analogous to the action taken by the Community to help the coal and steel industries with their restructuring problems.
In emphasising the objective of getting the world economy back to a satisfactory growth path, I also said that any attempt to restore growth to the pace of the 1960s carries with it the danger of rekindling inflation. I said, however, that this danger may well have been exaggerated, and emphasised in particular the need not to confuse inflation with reflation.
Other Heads of Government spoke at some length and with great concern on their analysis of the problems. The Council generally recognised that action must in large part be undertaken on a world scale and that the Community itself has an important role to play. They agreed to seek action at Community level in three directions. : first, to promote measures to help resolve specific labour market problems, and especially in improving training and employment opportunities for young people and women; secondly, to encourage higher levels of investment in the member states; and, thirdly, to halt divergence and promote convergence in their economic performance. To this end the European Council invited the Commission, in particular by the better use of Community instruments, and, on the other hand, the board of governors of the European Investment Bank, to seek ways of improving the effectiveness of their activities.
The Council also emphasised the importance of co-operation between the social partners and agreed to the holding of a further tripartite conference in the first half of this year, at a date to be agreed, at which progress and possibilities could be reviewed. The Council agreed to reconsider progress on this range of problems at their own projected meeting in June. They agreed to conduct a further examination of the results obtained in the fields of growth, unemployment and the fight against inflation at their meeting at the end of the year, and to assess then the Community's prospects of making progress towards economic and monetary union.
As Deputies know, the North/ South dialogue is concerned with:
(1) the treatment of the massive debts which have been accumulated by developing countries, and
(2) ways and means of ensuring a price for basic commodities which is fair to producers and consumers, and can perhaps help developing countries and avoid the wide fluctuations in prices which are a characteristic of markets in these materials.
The commodities concerned are diverse in nature and economic importance. They could include coffee, tea, sugar, and other agricultural products as well as lead, zinc, copper and bauxite and other minerals. The price of oil is also germane.
Before the Rome meeting there were wide divergences of principle. However, at the meeting we agreed on a common position. We agreed that there should be commodity price stabilisation agreements where appropriate and that there should be a common fund. There would also be a study of export earnings stabilisation measures for developing countries and of special action for the CIEC on aid.
This will now be worked up in detail at the Foreign Ministers Council on 5th April and will be brought forward in the preparations for the CIEC ministerial meeting in Paris, in which the Community will co-ordinate its position with the other industrialised countries in the group of eight. This will be followed by detailed negotiations at the UNCTAD conference.
The Community will call on other countries, for instance, in Eastern Europe and oil-producing countries, to make an adequate contribution in the development field.
It is too soon yet to estimate the sort of expenditure to which the arrangements could commit this country. On present appearances, the figure could be of the order of some £ millions, spread over a number of years. If what is achieved brings about a better life in the developing countries, with some stabilisation in the price and security of supply of basic commodities, including oil, the investment will have been well worth while.
The Council discussed the steel industry, which in a recent year employed just under 800,000 people in the Community. The situation in the industry has been deteriorating steadily for three years. It is well for us to bear in mind just how badly the recent recession and its aftermath are affecting essential industries in Europe. The steel industry there is working at about 60 per cent of capacity and order books are measured in weeks rather than in months. The council took note of the efforts being made by the Commission to put forward at an early date practical proposals for short-term remedial measures to stabilise the market, for longer term structural reorganisation and for measures in the social field to assist workers adversely affected by reorganisation.
Japanese penetration of European markets, and the difficulties of European exporters in finding corresponding markets in Japan, were another subject of concern to the council. Between 1972 and 1976 Japanese imports to Europe rose by more than 320 per cent to about 7,000 million dollars—as against an increase in Community exports to Japan of only 130 per cent approximately. Discussions between the Community and Japan have been reasonably productive, so far, of understandings to establish a balance. All are anxious to avoid resort to protectionism, except as a last resort. This could stunt world trade on which we all depend for economic growth. The essential problem for Europe is to step up exports to Japanese markets. These discussions are being continued.
With so much emphasis on economic issues, it is hardly surprising that one of the most controversial subjects at the Rome meeting was the question of the representation of the Community at the Downing Street Summit to be held in London in May. As Deputies know, this summit is in the tradition of Rambouillet and Puerto Rico. It will be attended by the major industrialised nations of the free world and will discuss reflation, protectionism and unemployment, and international trade generally.
The attendance of the Community, as such, at the meeting to speak on matters within its remit had been resisted. In Rome, the argument on the point was long and, at times, heated. In the end, the council agreed that the President of the Council of Ministers and the President of the Commission would be invited to take part in those sessions of the summit at which items which are within the competence of the Community are discussed. Examples of such items are negotiations about international trade and the North/South dialogue.
Part of the meeting was taken up with an account by Mr. Callaghan of his recent visit to the United States. There was also some discussion on human rights questions and on the preparations for the review of the Conference on Security and Co-operation provisions to take place later this year in Belgrade. Problems in relation to the enlargement of the Community were also discussed. Difficulties here are apparent. The Foreign Ministers are being asked to study the question in greater depth at their meeting in Leeds Castle in May.
There was discussion on the form and organisation of European councils. General agreement was reached that councils should have—
(1) informal exchanges of view of a wide-ranging nature held in the greatest privacy and not designed to lead to formal decisions or statements; and
(2) discussions which are designed to produce decisions, settle guidelines for future action, or issue public statements expressing the agreed view of the council.
There was recognition also that the European Council will sometime need to fulfil a third function, namely, to settle issues outstanding from discussions at a lower level. But there was some concern that the council should not become a court of appeal whose role might undermine the authority and efficiency of the Community institutions. This concern related both to the frequency with which the council might assume this role and also the need, when it does, for the council to conform to the appropriate procedures laid down in the Community treaties and other agreements. These questions are to be considered in more detail later.
The Rome meeting was useful. The range of subjects was wide. It covered economic growth, inflation, unemployment, international trade, the difficulties in the steel industry, relations with Japan, America and the developing countries, the forthcoming economic summit in London, the organisation of future European councils, the enlargement of the Community and many other issues of fundamental importance to this country and to the world today. Indeed, perhaps, the very breadth of discussion will illustrate the essential nature of these councils. They can give directions and formalise consensus— and this in itself is extremely valuable —but only exceptionally, I think, are they suited for reaching positive decisions. The issues here must obviously be of really major importance and ripe for decision.
The discussions I had with Mr. Callaghan on Northern Ireland, outside the framework of the meeting, illustrate a useful attribute of these meetings. Our discussion, though short because of the pressure of other business, was friendly and, for me, reassuring in emphasising again our joint commitment to a settlement acceptable to both sections of the community in Northern Ireland.
The council issued texts on (1) growth, inflation and employment, (2) Japan, (3) steel and (4) the Downing Street Summit, which, in accordance with normal practice, I am arranging to have laid before the House.
